Interest-Only Payment
Paiement d'intérêts seulement in French
Quick definition
An interest-only payment covers the interest charged for the period and nothing else. The balance owing does not fall, so the debt lasts indefinitely and the total interest paid has no ceiling.
The arithmetic
The monthly interest-only payment is the balance multiplied by the annual rate, divided by twelve. On $50,000 at 6.45% that is about $269 a month.
Pay exactly that and the balance is still $50,000 next month, next year and in a decade. Over ten years you would have paid roughly $32,000 with the debt entirely intact.
A payment one dollar above the interest does reduce the principal, but glacially. The relationship is steeply non-linear: at $300 a month the same balance takes over 25 years to clear, and at $600 it takes about nine.
Where you meet it in Canada
The most common place is a home equity line of credit, where the required minimum payment is usually just the month's interest. That is a defining feature of the product, not a promotion.
Unsecured personal lines of credit often work the same way, sometimes with a small principal component. Some construction and bridge financing is interest-only by design for the duration of the build.
Interest-only mortgages exist in Canada but are uncommon and are generally offered as a readvanceable product or to investors rather than to ordinary owner-occupiers.
When it is a genuinely useful feature
A low required payment is real flexibility in a real emergency. If income stops for three months, being able to drop to interest only on a line of credit rather than defaulting is exactly what the feature is for.
It also fits genuinely short-term borrowing with a known exit: bridging a house purchase before a sale closes, or funding a renovation you intend to repay from a specific source on a specific date.
In both cases the defining characteristic is that the interest-only period is temporary and you know what ends it.
When it becomes a trap
The trap is treating the minimum as the payment. Because the required amount is small, an interest-only balance is easy to carry and easy to stop thinking about, and nothing about the statement signals that no progress is being made.
It is worse on a variable-rate product. Because the payment tracks prime, a rate increase raises the payment directly with no fixed-payment cushion, and a balance that was comfortable can stop being comfortable with no warning.
The practical discipline: if the borrowing has a defined purpose and a defined cost, set a fixed monthly payment that clears it on a schedule and treat the required minimum as irrelevant. If you cannot name the date the balance reaches zero, the interest-only minimum is quietly making the decision for you.
In Canada
Canadian HELOC minimums are almost universally interest only, and the balance can legitimately remain outstanding for the life of the property. Lenders are not required to amortize it and generally do not.
Because HELOC rates are quoted as prime plus a spread, the interest-only payment on the same balance changes every time the Bank of Canada moves. Borrowers who budget around the current minimum are budgeting around a number that is not fixed.
Credit card minimum payments are a related but different animal: they include a small principal component, typically the greater of a percentage of the balance or a dollar floor, which is why a card balance does eventually clear on minimums while a HELOC balance does not.
Worked example
Dana draws $50,000 on a HELOC at 6.45% to renovate. The required minimum is $268.75 a month. She pays it faithfully for ten years, spending $32,250, and still owes the full $50,000. Had she instead paid $600 a month, the balance would have cleared in about nine years and cost roughly $14,700 in interest, saving more than $17,000 and leaving her debt free.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated September 2026